If the dollar interest rate is 10 percent, the euro interest rate is 6 percent, then
A) an investor should invest only in dollars if the expected dollar depreciation against the euro is 4 percent.
B) an investor should invest only in euros if the expected dollar depreciation against the euro is 4 percent.
C) an investor should be indifferent between dollars and euros if the expected dollar depreciation against the euro is 4 percent.
D) an investor should invest only in dollars.
E) an investor should invest only in euros.
C
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If the FOMC orders the sale of T-bills in the open market, then bank reserves are
a. decreased, but the money supply will remain unchanged. b. decreased, and a multiple contraction of the money supply will occur. c. increased, but the money supply will remain unchanged. d. increased, and a multiple expansion of the money supply will occur.
Dave consumes two normal goods, X and Y, and is currently at an optimum. If the price of good X falls, we can predict with certainty that
a. Dave will consume more of both goods because his real income has risen. b. the substitution effect will be positive for good X and negative for good Y. c. Dave may consume more or less of good X, but he will consume less of good Y. d. the substitution effect will offset the income effect for good X.